Vehicle repossession is a costly, arduous and unpleasant task for financial institutions. But retaking possession of the vehicle is only part of the process.
Lenders and loan servicers also must make sure their repossession agents store the vehicles properly and safely in accordance with their agreements before the cars are eventually redeemed by the borrower or sold again.
Performing due diligence on repossession agents helps ensure that the vehicle arrives and leaves the storage facility in the same condition. Failure to do so can be costly for lenders, both financially and in damage to their good name and reputation.
Preserving the vehicle in a safe and secure fashion mitigates and minimizes the financial and legal liability associated with the repossession process. Ensuring strict compliance and adherence to policy by their vendors protects the lender’s image and brand name, which is of the utmost importance to financial institutions.
Customers whose cars have been repossessed often choose to redeem their vehicle from the repo lot. Properly storing the vehicle prior to redemption significantly reduces borrower complaints, such as that something was taken from inside the vehicle, which can open up the lender to legal charges and damage awards.
According to the Federal Trade Commission, many states require creditors to tell the borrower what personal items were found in the car and to use reasonable care to prevent someone from removing property from the vehicle.
In California, for example, the repossession agent has 48 hours to provide the borrower with a list of personal items in the car and how the borrower can get them back.
If the creditor can’t account for articles left in the vehicle, borrowers may be able to bring legal action against the lender, requiring them to pay damages to the borrower. That could also give the borrower grounds to challenge a deficiency judgment.
In the event the customer chooses not to redeem the vehicle from the repo lot, unprotected vehicles can incur damages that will undoubtedly result in lower liquidation dollars the lender receives at an auction.
On-site reviews are integral to the repo process
On-site inspections should be an integral part of the repossession process. Conducting periodic on-site reviews is crucial to having greater awareness into the potential hazards associated with remote service providers. Unfortunately, given the far-flung geographic location of many storage facilities - and the number of repossession agents many large lenders use - many financial institutions simply do not have sufficient personnel to visit these facilities in a cost-effective manner.
Outside field service providers perform on-site inspections of the lots where repossessed vehicles are stored. They ensure that lenders’ repossession vendors are compliant with the terms dictated by their agreements.
Typically, lenders ask field service agents to answer the following questions:
• How big is the lot?
• Is it just a storage lot or does it have an office facility?
• If it is an office facility, does it have sufficient office equipment (i.e., phone, fax, email) to conduct operations?
• Is it staffed during core business hours?
• Where is customers’ personal property stored?
• How well is the lot lighted, if at all?
• Is the lot secured and attended?
• Is there a fence? If there is a fence, how high is it?
• Is there barbed wire on the fence?
• Is the lot paved, or is there some other surface (i.e., gravel, grass or dirt)?
In addition to providing answers to these questions, the field service rep takes photographs to provide visual proof to support the replies. The representative thus provides the lender with an unbiased, third-party verification of the lot’s condition.
By answering the questions and fulfilling the photo requirements mandated by the lender, the field inspection provides information and visibility into the legitimacy and operational efficiencies of the repossession vendor.
Field service agents are required to conduct their businesses in compliance with a specific set of standards. They create a seamless transition from in-house to outsourced site inspections.
Lenders currently are enjoying the best of both possible worlds: higher loan origination volume and low repossession rates. According to a recent news report, the number of vehicle repossessions has dropped more than 20% during the past 18-to-24 months. But rest assured that trend will not continue.
Generally there is a 12-month lag between higher loan originations and an increase in delinquencies and repossessions. That’s a natural consequence of growing competition among lenders who typically dig deeper into the credit pool to maintain and build market share. The right time to start a vigorous inspection program of repossession lots is now.
Justin Meece is director of sales at National Creditors Connection Inc., which provides field contact, loss mitigation and pre/post funding onsite inspection services to financial institutions nationwide. He can be reached at 800-300-0743, ext. 7606 or firstname.lastname@example.org.